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Finance-specific factors as drivers of cross-border investment--An empirical investigation

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  • Forssbæck, Jens
  • Oxelheim, Lars

Abstract

In this paper we empirically test the role of firm-specific financial characteristics as drivers of international investment and production. We hypothesize that financial strength generates advantages that can be exploited through cross-border investment activity. The hypothesis is tested in a series of binary-response models, using a sample of 1379 European non-financial firms' international acquisitions. Controlling for traditional firm- and target-country-specific foreign direct investment (FDI) determinants, we find strong evidence that financial factors play a significant role in explaining cross-border investment. We conclude that without explicit consideration of the financial dimension, firms' FDI decisions cannot be properly understood.

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Bibliographic Info

Article provided by Elsevier in its journal International Business Review.

Volume (Year): 17 (2008)
Issue (Month): 6 (December)
Pages: 630-641

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Handle: RePEc:eee:iburev:v:17:y:2008:i:6:p:630-641

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Related research

Keywords: Cost of capital Cross-border acquisitions FDI Financial strategy Financial variables OLI;

References

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  1. Bruce A. Blonigen, 2005. "A Review of the Empirical Literature on FDI Determinants," NBER Working Papers 11299, National Bureau of Economic Research, Inc.
  2. Pagano, Marco & Röell, Ailsa A & Zechner, Josef, 2001. "The Geography of Equity Listing: Why Do Companies List Abroad?," CEPR Discussion Papers 2681, C.E.P.R. Discussion Papers.
  3. Heckman, James J, 1979. "Sample Selection Bias as a Specification Error," Econometrica, Econometric Society, vol. 47(1), pages 153-61, January.
  4. Oxelheim, Lars & Randøy, Trond & Stonehill, Arthur, 2001. "On the treatment of finance-specific factors within the OLI paradigm," International Business Review, Elsevier, vol. 10(4), pages 381-398, August.
  5. Stephen R. Foerster & G. Andrew Karolyi, 1999. "The Effects of Market Segmentation and Investor Recognition on Asset Prices: Evidence from Foreign Stocks Listing in the United States," Journal of Finance, American Finance Association, vol. 54(3), pages 981-1013, 06.
  6. Bruce Kogut & Nalin Kulatilaka, 1994. "Operating Flexibility, Global Manufacturing, and the Option Value of a Multinational Network," Management Science, INFORMS, vol. 40(1), pages 123-139, January.
  7. Oxelheim, Lars & Randøy, Trond, 2001. "The Impact of Foreign Board Membership on Firm Value," Working Paper Series 567, Research Institute of Industrial Economics.
  8. Anant K Sundaram & Dennis E Logue, 1996. "Valuation Effects of foreign Company Listings on U.S. Exchanges," Journal of International Business Studies, Palgrave Macmillan, vol. 27(1), pages 67-88, March.
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Citations

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Cited by:
  1. Axel Jochem, 2010. "International Financial Competitiveness and Incentives to Foreign Direct Investment," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 230(1), pages 42-58, February.
  2. Huan Zou & Xiaoyun Chen & Pervez Ghauri, 2010. "Antecedents and consequences of new venture growth strategy: An empirical study in China," Asia Pacific Journal of Management, Springer, vol. 27(3), pages 393-421, September.
  3. Oxelheim, Lars & Randoy, Trond & Stonehill, Arthur, 2011. "What Can International Finance Add to International Strategy?," Working Paper Series 888, Research Institute of Industrial Economics.
  4. Guillamon-Saorin, Encarna & Sousa, Carlos M.P., 2010. "Press release disclosures in Spain and the UK," International Business Review, Elsevier, vol. 19(1), pages 1-15, February.
  5. De Maeseneire, Wouter & Claeys, Tine, 2012. "SMEs, foreign direct investment and financial constraints: The case of Belgium," International Business Review, Elsevier, vol. 21(3), pages 408-424.

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